Valuing Intrinsic and Instrumental Preferences for Privacy

55 Pages Posted: 25 Jun 2019 Last revised: 1 Jul 2019

See all articles by Tesary Lin

Tesary Lin

University of Chicago - Marketing Management

Date Written: June 29, 2019

Abstract

In this paper, I propose a framework for understanding why and to what extent people value their privacy. In particular, I distinguish between two motives for protecting privacy: the intrinsic motive, that is, a “taste” for privacy; and the instrumental motive, which reflects the expected economic loss from revealing one’s “type” specific to the transactional environment. Distinguishing between the two preference components not only improves the measurement of privacy preferences across contexts, but also plays a crucial role in developing inferences based on data voluntarily shared by consumers. Combining a two-stage experiment and a structural model, I measure the dollar value of revealed preference corresponding to each motive, and examine how these two motives codetermine the composition of consumers choosing to protect their personal data. The compositional differences between consumers who withhold and who share their data strongly influence the quality of firms’ inference on consumers and their subsequent managerial decisions. Counterfactual analysis investigates strategies firms can adopt to improve their inference: Ex ante, firms can allocate resources to collect personal data where their marginal value is the highest. Ex post, a consumer’s data-sharing decision per se contains information that reflects how consumers self-select into data sharing, and improves aggregate-level managerial decisions. Firms can leverage this information instead of imposing arbitrary assumptions on consumers not in their dataset.

Keywords: Privacy, Revealed Preference, Information Economics, Value of Data, Experiment

JEL Classification: D01, D12, D82, D83, L11, L15, M31, M38

Suggested Citation

Lin, Tesary, Valuing Intrinsic and Instrumental Preferences for Privacy (June 29, 2019). Available at SSRN: https://ssrn.com/abstract=3406412 or http://dx.doi.org/10.2139/ssrn.3406412

Tesary Lin (Contact Author)

University of Chicago - Marketing Management ( email )

Chicago, IL 60637
United States

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